Tuesday, January 29, 2008

Ventura Snapshots

Taken shortly after the weekend storms:


Ventura County Median Household Income 2000 $59,666
Ventura County Median Household Income 2006 $72,107

Ventura County Median Home Price 2000 $248,700 Ratio 4.17x
Ventura County Median Home Price 2006 $600,000 Ratio 8.32x
Ventura County Median Home Price 2007 $523,000 Ratio 7.25x

Returning to 4.17x ratios for 2008 the median would be $305,000
Expected 3 year duration of declines we can project 2008 median price to fall $75,000 to $448,000.

Taken this morning while getting the paper:

The land in the foreground on the right is likely part of the $10m 400ac ranch mentioned yesterday.

30 comments:

Property Flopper said...

First, I'd have to say: Nice view.

Property Flopper said...

That aside... the above assumes prices will return to ~4.17 ratio. Why should it? The ratios of income to item cost is not static.

Take a TV set - 1960's, they were a major purchase... today, they are bigger, better and on sale at walmart.

Let's use a "large ticket item" for a better comparison. A house is usually the largest item a person buys, a car is usually the second.

My first was a 1968 Mustang, so lets use that. 1968 median income (nationwide) was $39,777. The mustang cost ~$2,500, roughly 1/16 of the median income.

Today, median is closer to $60k. Following that logic, a nice car should cost about $4k. Not likely.

Even the $72k median for Ventura would yield $4,500 for a new sports car. Definitely NOT the same ratio.

At best, you're looking at 1/3 the median income for an equivalent new car.

Why would you assume real estate will return to the 2000 ratio? I think it will drop now (it grew too fast), but over time, I expect the ratio will continue to climb - slowly squeezing the middle class out of property ownership.

Property Flopper said...

And (to keep in the spirit of ExUrb), something wildly off topic.

Guy looking for house about to be foreclosed so he can strip them with the owners permission.

http://sfbay.craigslist.org/eby/wan/555648595.html

w said...

Property Flopper, was 1968 median income actually 38k in 1968 dollars or adjusted to present? If it was adjusted don't we have to adjust the price of the mustang in 68? Isn't the income to price ratio pretty stable over like a 100 years? That being said, the ratio is just a guide so you are probably right that in Ventura County it will be higher.

Rob, if you see a Blue Chevy Silverado on the vegetable ranch in the forground of your first photo that is me.

Property Flopper said...

W - Good point, the income was adjusted to present, the Mustang was not.

The adjustment will bring the car price up (and the ratio down). I don't have a good factor for adjusting the price... anyone?

Numbers change (some), but will not bring it equal to today's ratio. Original point remains - the percentage of our yearly income we pay for a car has gone significantly in the past fourty years, why assume real estate won't do the same?

Anyone have a good source for income / housing prices over time? See if the ratio has been rising over the last 100 years or so?

Rob Dawg said...

I was out earning some of those depreciated dollars.

Anyway, a favorite inflation calculator:
MeasuringWorth

$2500.00 in 1968 is $14895.26 in 2007. A $15k auto today is so much better than the 'stang. That leads to the reason for paying more for autos. They last longer, a lot longer. I imagine we could squeak by the safety and emissions standards and build a 2007 retro Mustang for $8k or about half the original (adjusted) price.

Real estate is different, a combination of enduring value and depreciation of asset.

Rob Dawg said...

W,
Get some mud flaps dag gmmit and stay away from Ed Friel's lemons.

Property Flopper said...

> build a 2007 retro Mustang for $8k

Ah, the cheapest Kia is 13k (and it's rolling junk). Not likely to get anything out for 8k.

I'm wondering if there is a site that would show median home v. median salary over time. Would likely have to be local as the housing markets swing quite a bit... not sure how useful national averages would be.

Rob Dawg said...

The KIA can reasonably get to 100,000 miles.
The KIA can reasonably get 25 mpg.
The KIA has overhead valves and fuel injection and radio and power things like windows or steering or brakes.
I'm talking two doors, straight four or six and nothing else expected to last only 60k miles.

The graph you are looking for exists.
http://efinancedirectory.com/cimages/articles/median-income-priced-out.gif

Rob Dawg said...

The KIA can reasonably get to 100,000 miles.
The KIA can reasonably get 25 mpg.
The KIA has overhead valves and fuel injection and radio and power things like windows or steering or brakes.
I'm talking two doors, straight four or six and nothing else expected to last only 60k miles.

The graph you are looking for exists.
http://efinancedirectory.com/cimages/articles/median-income-priced-out.gif

sm_landlord said...

"... slowly squeezing the middle class out of property ownership."

If the middle class is squeezed out of property ownership, then who will own the property? The big money would only buy up property if it were cheap, not while it's expensive. IMHO the only way the middle class gets squeezed out of property ownership is if the government takes it all.

I have personally experienced the value of investment property falling dramatically - thanks to the Reagan tax reform. Also, my family history includes a grandfather who lost a farm in the dust bowl and a great uncle who lost a subdivision in the 1930s. Family friends lost one of the best California land grants to property taxes and restrictive zoning. So I'm convinced that real estate can and does go down, sometimes dramatically.

I have to agree with Rob on the car quality thing. Although the government's hedonic adjustments of CPI are sometimes just silly, they have a point about cars. The '60s and '70s cars that I owned were pure junk compared to the '90s cars that I own today.

Oh, and I love the measuringworth.com calculator! Best one I've seen.

Rob Dawg said...

sm_l,
The rich need the middle class to -aspire- to ownership. Nothing more. The attempting to own is just gravy.

The govt very well could take property with taxes and stagflation and other methods. I too remember well the Reagan compromise on investment property deductibility. 1987 and now 20 years later it still makes me wonder what he was thinking.

My dad's hobby was antique autos. I went to the prom in a 1929 Packard 626. The 1920 Buick with wood spoke wheels and canary yellow body and original leather was the ultimate fair weather car. The 1940 Bantam Hollywood Convertible was one of 6 made and 4 surviving. Sweet rides all but shit as transportation. Give me a 1990 Civic with 290,000 miles any day.

Glad you like the calculators. There's a lot there that isn't obvious. Be sure to explore.

Property Flopper said...

Rob - great graph, thanks.

Looking at the graph, 1968/70 the ratio is roughly 2.5. In 1990, it's 3.0.

Comes right back to the main question, why would housing return to a 4.17 multiplier? Why not back to the 3x? Houses in Ventura going for ~$220k?

Seems to me from the graph that the ratio has been increasing for a while. I do think it's out of whack right now and will come down, but as a correction - the ratio will continue to climb over time (my opinion only, your milage may vary).


SM Landlord - I expect the middle class to slowly fade away. Won't disappear completely, but will continue to shrink as a percentage of the population. Some will climb to the upper classes, most will fall toward the lower.

I think real estate will go more toward the have's with the have not's renting. Less opportunity to buy if you don't inherit either the property or the money to get the property.

We're not a rigid class society, so there will always be those who pull themselves up (or who crater and lose it all), but I see a larger and larger divide growing.

Again, my opinion only... interested to hear what others think on the subject.

Rob Dawg said...

Looking at the graph, 1968/70 the ratio is roughly 2.5. In 1990, it's 3.0.

Comes right back to the main question, why would housing return to a 4.17 multiplier? Why not back to the 3x? Houses in Ventura going for ~$220k?


The flippant answer is "things change." Actually that isn't flippant.
1 - Think about the 1968 house.
2 - Think about the 2008 house.

You had a 60% efficient furnace, 1 phone line, three television stations, and no insulation, single pane windows in rattle trap casements, asbestos linoleum in the kitchen with a 20% efficient refrigerator and on and on.

We pay more for cars because they last longer and perform better and cost less to own.
We pay more for houses because they last longer and perform better and cost less to own.

The middle class may end up as an historical footnote. An aberration of post WW-II never to be repeated events. What will not happen again is class barriers. Merit has new authority. Of this I am pleased.

Property Flopper said...
This comment has been removed by the author.
Property Flopper said...

> What will not happen again is class barriers.
> Merit has new authority.

Agreed and also pleased.

What will form the barriers will be education / drive.

This can be argued as a class barrier - better schooling provided in "good" neighborhoods and college costs climbing - but while the playing field may not be level, it's an incline, not a wall.

More a class speed bump instead of a class barrier.

Property Flopper said...

> The flippant answer is "things change."
> Actually that isn't flippant.

True!

But from that: Should a 1968 house be at a 4x multiplier or should only the new houses be at that? The rising prices bring up the old houses as well.

Let's say it drops to the 4x in the next year or so - as housing continues to improve, by 2020 we should see a 5 or 6x ratio as reasonable... 2030 it'll climb again... the ratio has been climbing and will continue to do so - odd peaks like we are in now not withstanding.

Surprisingly, while the ratio has been climbing, home ownership percentages have also been rising. I wonder which will win out?

Good topic, been fun... but I've got to go deal with clients. Back tomorrow.

BJ said...

I was going to add some info on the car stuff.. having worked on both old and new and having owned a 1971 Q Series Mustang.

Anyway, interesting link here, not related to the above..

http://biz.yahoo.com/ap/080129/subprime_mortgages_fbi.html

The wheels grind slowly.. but exceedingly fine.

Rob Dawg said...

Here let me blow up all notions. What if cement excreting robots were able to build at $5-$8 per square foot?

Basically all housing now becomes land/location value.

Jean ValJean said...

Speaking about cars...
---------------
DETROIT (AP) — U.S. automobile prices could rise significantly in the near future because of industry restructuring and rising raw material and regulatory costs, General Motors Corp.'s chief financial officer said Tuesday.

Fritz Henderson said the industry has less manufacturing capacity than in the past and therefore less pressure to sell vehicles cheaply just to move inventory.

It also faces higher raw materials costs, rising technology costs and increased costs from fuel economy and other government regulations, he said.

While the U.S. market still is competitive, "you could potentially see a significant change from what we've seen in the last eight or 10 years," Henderson said during a speech to the Automotive Press Association in Detroit.

Henderson said he didn't know when prices might start to rise, but he sees pressures because costs already have gone up and automakers are spending a great deal on new technology. GM has also reduced its sales to low-profit fleet buyers such as rental car companies, he said.

"You're going to see a lot of costs in the car today that's already happened, whether its steel or raw materials or precious metals, and then you combine the technology on top of it, and I think you're going to see pressure. The question is when does it manifest itself in the market? I don't know," he said.

http://ap.google.com/article/ALeqM5jB99vP2QPv4Ec9Tsu7FWIHZ4foMgD8UFOKJ82

Lou Minatti said...

That's a very nice view, Rob. I'd be lying if I said I wasn't envious.

Lou Minatti said...

U.S. automobile prices could rise significantly in the near future because of industry restructuring and rising raw material and regulatory costs, General Motors Corp.'s chief financial officer said Tuesday.

If GM builds the Volt and it works as advertised, I don't care. I think that most of us would be eager to spend 10-20% more for a car that eliminates the use of gasoline for 90% of our trips.

David said...

Here let me blow up all notions. What if cement excreting robots were able to build at $5-$8 per square foot?

Basically all housing now becomes land/location value.


This was the idea behind the Usonian houses of Frank Lloyd Wright... he thought that modern building methods based upon concrete and prefab could make buildings artistic, cheap, and effectively based upon land prices.

His Usonian houses were at least one of those three! ;-)

DCRogers

spooq said...
This comment has been removed by the author.
spooq said...

Well we're going to find out in a few hours if Rob Dawg was correct about gold. If the Fed cut again (and can anyone imagine it not happening at this point?), then in theory gold should gain. I shall clutch my krugerrands tightly in my sweaty palms until then. ;)

Are the reports of the death of the middle class greatly exaggerated? What is it based on, other than a general feeling of impending doom?

> The rich need the middle class to -aspire- to ownership. Nothing more. The attempting to own is just gravy.

Sorry, no, that will not work. You can fool some of the people all of the blahblahblah. If people can't win, they won't play - or more to the point may start up a different game (cf. French Revolution for an amusing example).

> expect the ratio will continue to climb - slowly squeezing the middle class out of property ownership.

I hardly see how you can complain about people being squeezed out of ownership when you've just had the most enormous free-for-all in decades and your government is desperately dropping rates in order to keep your newly-promoted middle-class citizens where they are. The fittest will survive, the rest will go back to the council estates for another generation. C'est la vie.

spooq said...

Is mentioning the Revolution the socioeconomic-thread equivalent of Godwinning? At any rate, before I get called out for being overly dramatic - that's the whole point. Things are not even vaguely close to being that bad. The US is just having the horrible shock competing against other nations for the first time in half a century, and as usual, the poorer you are, the more it hurts.

Jean ValJean said...

Sorry, no, that will not work. You can fool some of the people all of the blahblahblah. If people can't win, they won't play

Tell that to all those Powerball ticket-purchasers.

Rob Dawg said...

Gold $918 with 4 hours before the Fed.

Spooq, I guess we need another thread as to why I think there's a case that the middle class is/was a temporary abberation post WW-II.

spooq said...

> Tell that to all those Powerball ticket-purchasers.

"some of the people all of the time" :)

> Gold $918 with 4 hours before the Fed.

Yep, the closer the time comes, the more it will drop. Lots of bargains if your nerve and luck hold. I don't play those kind of games personally, but more power to those who do.

> Spooq, I guess we need another thread as to why I think there's a case that the middle class is/was a temporary abberation post WW-II.

By all means, I'd be very interested to read what you have to say on the matter.

bluto said...

Perhaps I don't understand middle class, but hasn't a wealthy but politically powerless class been established since the Renaissance?

I agree that the concept of every worker (no matter the skill) affording a home/tuition/retirement and any lifestyle goods along the way, was a product of the severely labor constrained post WWII environment of the US.